GM & Ford Debt cut to junk status by S&P
 

Well it looks like S&P decided to announce what most people in the financial world already know, which is that Ford and GM’s credit rating is really junk status. Since I’m in banking and look at capital structures of companies all day long, its quite obvious why they cut them down. Both Ford and GM are up to theit eye balls in debt, although in fairness, much of it is in the financing arms of GMAC and Ford Motor Credit.

This downgrade will hurt both auto makers ability offer cheap financing and incentives to consumers as it now costs the company more to borrow. Given the lackluster sales as of late, combined with slow truck and SUV sales due to higher gas prices, both of these guys, especially GM are in serious trouble.

It’s a given that one of the big 3 will file Chapter 11 this decade, there is no way around it. Right now, my money is on GM. If I was them, I would consider a pre-packaged bankruptcy deal, which will break all the union contracts so they can shut down about 25% of there production capacity and get rid of there dead weight. Of course this means some serious job losses, but the union’s had this coming with their ridiculous demands for benefits and pay. I still hold GM management most responsible, as if they had been treating there employees correctly year ago, they wouldn’t have this problem now. If South West Airlines can make money, keep there employees happy and manage the huge logistical and capital requirements of shuffling people safely around in flying aluminum cans, GM and Ford should be able to make high quality, profitable vehicles.

I think most agree that the Union's will have to be broken down, and something done with their pension fund - as in turn it over to the gov't. Makes me wonder if the GM fallout that seems to be imminent will result in a movement to more socialized care here in the states.

Keep in mind that LUV is a service company and not a manufacturer. They have entirely different dynamics in terms of what they have to do to succeed...

Chapter 11 would probably be the best thing for GM. Maybe then they'll do some restructuring, liquidate the Buick and GMC brands, stop making so many stinking SUVs and get back in the game. I dumped all of my GM investments a couple of years ago when everyone and their dog started making SUVs. I knew it wouldn't be long until GM's market share started disappearing. I could see it, I don't understand why they couldn't. They're heading in the right direction with their newer models, but it's too little, too late.

So GMAC and FMC are bad for their respective companies? I thought I read somewhere that they were the only parts of those companies that actually made money.

Labor and benefits is huge issue in this particular case. GM needs to put somewhere around an extra ~2,000 into every car to compensate these costs. This results in lower quality and cheaper parts, less for design and research, etc...

GM has been more a socialized fund with a car company as a side project, than the reverse.

No, your right both GMAC and FMC have made huge money for Ford and GM b/c they could afford to borrow money at investment grade rates. Now that they can't, they will be much less profitable, which will hurt GM and Ford's bottom line even more.

R.I.P GM due to their SUV focus--- it's all they've had (at obscene profits) for the last few years.

Poor visability. chasing the buc "Look at how much we can make per SUV", but then they give up the balance of the market.

Never underestimate the power of the union :rolleyes: